The IRS is updating income limits for its seven tax brackets, raising them by 5.4% to accommodate inflation. This adjustment aims to prevent “bracket creep,” where workers are pushed into higher tax brackets due to cost-of-living adjustments. The tax agency raises tax brackets annually, and for 2024, the standard deduction is also increasing by 5.4%. Taxpayers filing in 2025 can benefit from potentially lower taxes, as more of their income may fall into lower brackets. The marginal tax rate is the highest rate applied to the highest taxable income, while the effective tax rate reflects the overall tax rate on various income parts. The IRS is also increasing limits for tax-advantaged accounts like Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). FSAs will have a limit of $3,200 in 2024, up from $3,050, and HSAs will see higher contribution limits for both individuals and families.
Tax Bracket Charts by Aimee Picchi